Democracy levels and the income–military expenditure relationship

Abstract

I explore whether the level of democracy has an impact on the income sensitivity of military expenditures. Such an impact can exist if military support is a substitute for popular support in nondemocracies but not in democracies. For a panel of developing and less developed countries, I find that the sensitivity of military expenditures to income changes decreases with the level of democracy.

Acknowledgement

The author thanks Roy Boyd for helpful comments.

Notes

¹For example, Mulligan et al. (2004), Dunne and Perlo-Freeman (2003a), Wall (1996) and Beenstock (1993).

²The presence of a lagged dependent variable in Equation 1 can introduce potential biases if standard panel techniques are used. The Anderson–Hsiao methodology of time differencing Equation 1 overcomes this problem but can be inefficient. The Arellano–Bond Generalized Method of Moments (GMM) method, by contrast, can be more efficient as it allows the use of multiple instruments (e.g. Acemoglu et al., 2008).

³World Development Indicators database.

⁴The list of countries is in the Appendix.

⁵Similar to Wigley and Akkoyunlu-Wigley (forthcoming).

⁶If u_it are serially uncorrelated, then are correlated with , because Cov(,). But will not be correlated with for k 2 (Cameron and Trivedi, 2009).

⁷The rejection of the null is interpreted as indicating that at least one of the instruments is not valid (Cameron and Trivedi, 2009).